Analysts: Ailing Elan casts buyout bait for Biogen Idec

In the aftermath of a failed Phase III trial for Elan's ($ELN) Alzheimer's drug, the Irish pharma group appears better suited as a takeover target for biotech powerhouse Biogen Idec ($BIIB), analysts from Jefferies Group and RBC argue. Bloomberg probed further into the firms' cases for Biogen to pull the trigger on what could be the biggest merger in the Weston, MA-based company's history.

Biogen, of course, is partnered with Elan on its second-best selling multiple sclerosis therapy Tysabri, and a buyout of the Irish drugmaker would give Biogen full ownership of the blockbuster product. And as Alkermes ($ALKS) showed last year with its buyout of Elan's drug delivery business, a move that enabled Alkermes to move its headquarters from Massachusetts to the corporate tax haven of Ireland, Biogen stands to gain from the lower corporate tax in Ireland via an acquisition of the rest of Elan.

However, timing can be everything in biotech mergers, and history shows that patience is precious. Elan sits in a weakened state after the first of four phase III trials of its Alzheimer's drug bapineuzumab, developed with Pfizer ($PFE) and Johnson & Johnson ($JNJ), failed to improve dementia in patients. While that disappointment drove down Elan's shares this week, the company's stock could suffer further if the experimental drug flunks the next late-stage study. Then there's the BG-12 factor. Biogen's prized MS pill could hit the market next year, eating into the market for Tysabri, one of several major products for Biogen but the only big seller for Elan.

"It would make sense for Biogen to see how BG-12 launches and what share of Tysabri's market does it take," Leerink Swann analyst Marko Kozul said, as quoted by Bloomberg. "That could potentially further weaken Elan, so if you're Biogen, you could buy Elan at a cheaper price."

Yet if bapineuzumab unexpectedly succeeds in the next round of Phase III trials, Elan could have additional suitors such as Pfizer and Johnson & Johnson, one investor in Elan noted to the news service.

Biogen CEO George Scangos and his chief dealmaker Steven Holtzman might want to steal a few pages from the M&A playbook at London-based GlaxoSmithKline ($GSK), which scooped up its long-time partner Human Genome Sciences ($HGSI) recently at a moment when the U.S. biotech's stock was suffering from a disappointing launch of the new lupus drug Benlysta.

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